The Securities and Exchange Commission charged R. Allen Stanford with an $8 billion fraud centered around the sale of certificates of deposit, saying the flamboyant businessman hoodwinked investors by promising high and seemingly safe returns.

As the SEC charges were made public Tuesday morning, U.S. marshals and Federal Bureau of Investigation agents raided Stanford offices in Houston.

The SEC said that Stanford Investment Bank sought to lull investors into thinking their investments were safe, providing assurances that the bank invested the money in liquid financial instruments that were monitored by a team of more than 20 analysts.

But those assurances were false, the SEC said. Instead of ultra-safe investments, a substantial portion of the portfolio was placed in real estate and private equity, the SEC said. The investments weren't monitored by a team of analysts, but instead by two people, Mr. Stanford and James Davis, chief financial officer of the bank.

It was the second huge alleged fraud to emerge in three months, following the SEC's charges in December against Bernard Madoff, who was accused of carrying out a $50 billion Ponzi scheme.

The SEC said Stanford sold about $8 billion of the certificates of deposit. The agency also accused Stanford of fraud connected with the sale of a mutual-fund program with reported assets of more than $1.2 billion.
[Allen Stanford] Reuters

The SEC said R. Allen Stanford "perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors."

The SEC said Mr. Stanford and three of his companies claimed to have received double-digit returns on investments for the past 15 years, but the returns were "improbable" and unsubstantiated.

"As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said SEC enforcement director Linda Thomsen in a statement.

Phone calls to Stanford Financial Group weren't returned, and a spokesman didn't immediately respond to an email. Longtime Stanford lawyer Richard Razook of the law firm Hunton & Williams declined to comment.

The SEC said it won a temporary restraining order freezing the assets of Mr. Stanford and three of his companies. The agency acted on information that in the last two weeks, Antigua-based Stanford International Bank has sought to remove more than $178 million from its accounts. The agency also sent in a receiver, who will be responsible for returning assets to investors.

The SEC said that Stanford suffered losses in the alleged Madoff fraud, contradicting Stanford's assurances to its investors that it had no direct or indirect exposure. According to the SEC, Messrs. Stanford and Davis were told on Dec. 15 that Stanford companies had a loss of roughly $400,000 based on indirect exposure to Mr. Madoff.

At Stanford's Houston headquarters, U.S. marshals and FBI agents arrived in a fleet of Chevy Suburbans and GMC pickup trucks with tinted windows as early as 9 a.m. Central time, according to witnesses.

Agents quickly secured all entrances and exits to two buildings, both carrying Stanford Financial Services signs: one four-story building at 5050 Westheimer Road that appeared to be the main headquarters, and another 20-story building across the street at 5051 Westheimer Road.

Dozens of workers inside the headquarters building were herded into glassed-in offices on the ground floor, where they appeared to be sequestered. Federal agents set up a perimeter around the buildings, and some agents were posted on the roofs of nearby buildings with a view of the area. Agents declined to comment on the situation.

Wallis Marsh, who works for an oil company in a neighboring building and has friends who work for Stanford, came over to the Stanford building when he saw law enforcement agents gathering there. "They didn't come in with guns blazing, but as you can see, they have a big presence," he said, pointing to the agents on the roof.

How this continues to happen is beyond me, how can any individual put trust in wallstreet after this kind of fraud continues to happen on a daily basis. There seems to be no control over anything, and we all know this is not the last of it.

LONDON (MarketWatch) -- Allen Stanford, the Texan billionaire who hasn't been seen since he was accused of an $8 billion fraud earlier this week, used a tiny accounting firm with offices above a hair salon in North London to audit his financial empire, according to media reports.
The firm -- CAS Hewlett & Co. -- was the auditor for Stanford International Bank and was run by Charlesworth Hewlett until his death last month. Of three addresses registered in London, residents at two had no knowledge of Hewlett and the third was a one-room office previously used by the accountant, the Financial Times reported.
The firm's Antiguan office, meanwhile, is run out of just two rooms, with an old typewriter and an eight-year-old telephone directory on the reception desk, the FT had separately reported.

"His father, James Stanford, who was on the board but hasn't been charged, told the Houston Chronicle that he didn't know the details of how the investments were structured or where deposits had been invested.
"I cannot believe, I will not believe what is being alleged actually happened," James Stanford reportedly said, adding he didn't know where his son was."